Correlation Between NMC and CLO

Can any of the company-specific risk be diversified away by investing in both NMC and CLO at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining NMC and CLO into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NMC and CLO, you can compare the effects of market volatilities on NMC and CLO and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in NMC with a short position of CLO. Check out your portfolio center. Please also check ongoing floating volatility patterns of NMC and CLO.

Diversification Opportunities for NMC and CLO

-0.31

Correlation Coefficient

NMC  CLO

Very good diversification

The 3 months correlation between NMC and CLO is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding NMC and CLO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CLO and NMC is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on NMC are associated (or correlated) with CLO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CLO has no effect on the direction of NMC i.e., NMC and CLO go up and down completely randomly.

Pair Corralation between NMC and CLO

Assuming the 90 days trading horizon NMC is expected to generate 438.13 times less return on investment than CLO. But when comparing it to its historical volatility, NMC is 96.71 times less risky than CLO. It trades about 0.07 of its potential returns per unit of risk. CLO is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  0.07  in CLO on December 28, 2024 and sell it today you would lose (0.06) from holding CLO or give up 86.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

NMC  vs.  CLO

NMC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NMC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, NMC may actually be approaching a critical reversion point that can send shares even higher in April 2025.

CLO

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CLO are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CLO exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMC and CLO

The main advantage of trading using opposite NMC and CLO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NMC position performs unexpectedly, CLO can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in CLO will offset losses from the drop in CLO's long position.

The idea behind NMC and CLO pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.